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Why Startups Fail: Five Classic Failure Modes

Reality Will Always Win

I’ve been fascinated in the past few years to see startups repeat failure modes that have been (often painfully) experienced by teams for decades. Given the huge body of knowledge that exists about how to successfully build a startup, we might think that it was a solved problem. But it clearly isn’t.

So what’s going on?

To build a startup, you need a reality distortion field. You, your team, and your investors, need to believe that what you are building will work, will make a difference. You need to know in your bones what success will look like and how the world will be different because of you and your team. You need a vision.

The problem is: your vision is an emotional construct, not a rational one. You and your team are drawn to it for much deeper reasons than commercial success — it’s about creating something new, about changing the world we live in.

And because the vision is deep and non-rational it’s very hard to have it challenged. When you start to get feedback from the real world that indicates the need for change, you react with your emotional brain, not your rational one. You ignore, distort or fail to hear what reality is telling you, and hope that Everything Will Be OK.

But reality will always win.

Startups fail because they fail to align their vision with reality.

Five Classic Failure Modes

These are five classic startup failure modes, each of which has the fundamental cause of a deeply attractive vision ending up misaligned with the real world.

1. The Product Is Too Early

The product is perfectly aligned with a great long-term vision. Google Glass: in the future, the virtual world and the real world will merge, and we will experience both simultaneously. Exactly right.

The problem is that the technology doesn’t support the vision yet. The product is too big, or too slow, or too expensive, or simply too hard to design in its current manifestation. There are dozens of examples of this failure mode littering Silicon Valley’s history: the Osborne 1 — a twenty-four pound “portable computer”, the Apple Newton etc etc.

Often there are a small group of very enthusiastic early adopters and a lot of buzz and excitement. The idea that the world is about to change is addicting! But traction never happens beyond the early adopters.

The vision swamps the obvious reality that the technology just isn’t ready yet.

2. The Product Is Too Late

The product is a version of an existing technology with a few very nice new features. The Amazon Fire phone: a perfectly decent phone with a perspective view and a Buy feature.

The distortion here is that a couple of nice features will disrupt an established, competitive market. They won’t.

Often a project like this is simply driven by hubris: “we can beat Google and Apple because, well, we just can!”.

Or there is belief that if a startup sneaks into a new market with a couple of new features, the existing players will ignore them, fail to compete and allow the new player room to grow.

The vision here is the Giant Killer. Not going to happen. Be radically disruptive, or don’t do it.

3. The Big System

The product is a completely rearchitected version of something that more or less exists already. Phrases like “we’re really going to get the architecture right this time” describe the work. The team is often incredibly talented.

The distortion here is that getting the architecture “really right” will have an effect on user acceptance, regardless of the degree of product/customer fit. It won’t. Product/customer fit is everything. A great architecture will save you money in the long term (if it actually is a great architecture), and may give you flexibility in how you develop over time. But it won’t, by itself, produce a successful product.

4. Not Listening: You’re Gonna Build What You’re Gonna Build

The symptoms here are that the project is proceeding with a minimal degree of market testing, or the market testing is being “re-interpreted” or ignored. You may hear things like “the customers we asked were not representative”. Or “we tested an early version: when we add more features, we’ll get better results”.

The distortion here is simply that the startup leaders have pretty much decided what they are going to build. For whatever reason they are deeply attached to it, and are going to build it anyway.

This is completely understandable! We all have ideas and visions that we want to make real, for reasons that are not necessarily rational. We just want to build them.

But by not listening to market input, the project is reduced to a dice-roll.

5. ADHD

The product is stretched to serve many, often wildly different, customers. One month it’s a consumer mobile app, the next it’s a platform. Then an interesting partner comes along, and the product is a super-low-cost OEM item.

Everybody is busy, everybody is optimistic, because the team is mostly starting things, which is fun, instead of finishing them, which is difficult and hard.

The distortion here is that one strategy and one technology can serve multiple purposes. That may be possible in the long-term, but to start with the project needs solid, deep roots in one place.

In the end, it’s likely that no one customer set will be really satisfied.

What To Do, Part 1: Separate Strategy From Vision

The good news is that you can be successful without giving up your vision!

Vision and Strategy are different. Vision is emotional — a set of scenes and stories that energize you and your team. Strategy is rational — a series of business steps that lead to a commercial result.

“We are going to enhance human capabilities by merging the informational world with the real world” is a vision. Google Glass is a strategy.

If you confuse vision and strategy, you will feel that your vision is being challenged, and you will react emotionally, holding on for dear life.

If you test reality against your strategy, and alter your strategy as a result, you can proceed without the emotional cost of having to give up your vision.

What To Do, Part 2: Test Your Strategy Against Reality

The Lean Startup approach provides a robust set of tools and techniques for testing your strategy against reality. Use them! Be clear about the assumptions behind what you are building, figure out an experiment in the real world, and clearly and honestly interpret the results.

If you’re too early, customers will tell you. If you’re too late, they’ll tell you. If you keep changing your mind about what the product is, they’ll let you know.

Building a Startup is a Creative Act. Enjoy It.

Building a startup is an exercise in altering reality. We want to create something that didn’t exist before we started. It’s a creative act disguised as a commercial act, and the confusion between the two is what leads many startups off the rails.

Enjoy your vision. Engage in the messy, sometime chaotic business of finding out what your project truly wants to be in the real world. Respect reality, and it will respect you back.